Demonstrating that he’s probably not a fan of Mitchell’s Golden Rule, Paul Krugman recently asserted that fiscal austerity has failed in the United Kingdom.
Citing Keynesian theory and weak economics numbers, he warned about “the austerity doctrine that has dominated elite policy discussion” and says that the British government made a mistake when it decided to “slash spending.”
In support of the New York Times columnist, another blogger commented on the “sharp retrenchment in public spending” in the U.K. And a Bloomberg editorial also supported Krugman’s position, stating that recent events “undermine the conservative idea that slashing government spending will somehow bring about a confidence-driven economic boom.”
There’s only one small, itsy-bitsy, teeny-weeny problem with all of these statements. They’re based on a falsehood. Government spending in the United Kingdom has not been slashed. It hasn’t been retrenched. It hasn’t even been cut.
I first made this point back in 2010. And I also noted that year that the supposedly conservative Chancellor of the Exchequer advocated a big increase in the value-added tax was good since it would generate “13 billion pounds we don’t have to find from extra spending cuts.”
I then repeated myself last year, pointing out once again that government spending was expanding rather than shrinking.
To be fair, spending hasn’t been growing as fast in the past couple of years as it did last decade. According to European Union data, government spending in the United Kingdom grew by an average of 7.6 percent each year between 2000-2008, so the recent annual increases of 2 percent-4 percent may seem frugal by comparison.
But at the risk of stating the obvious, slower spending increases are not budget cuts. Unless, of course, proponents of big government decide to use the dishonest political definition that spending is cut when the budget doesn’t increase as fast as previously planned. But if that’s the case, then they are turning Keynesian economics into a political gimmick.
Not only haven’t there been any spending cuts in recent years, but it also appears that there won’t be any in future years. The Centre for Policy Studies just put out a report comparing “austerity” in the United Kingdom today with the fiscal discipline that took place in Canada during the 1990s.
As seen in the table, and as I noted in a previous post, Canada actually reduced spending.
In the United Kingdom, by contrast, spending has been climbing. And that’s projected to happen even in future years.
(see table at the link above)
To be sure, spending in the U.K. won’t grow very fast (assuming the government sticks to its plans, which may be an unrealistic assumption).
But spending that grows slowly is not austerity or retrenchment.
Which is unfortunate, because that’s precisely what is needed in the United Kingdom. And the Canadian experience shows how genuine fiscal restraint generates big benefits.
To read the complete article select the link above